Family offices are widely recognized for their philanthropy, yet what follows once they write that check? With a growing trend toward more engaged philanthropy, family offices seek assurance that their contributions create meaningful impacts. Marcus Baram delves into this issue, consulting experts on strategies both pre- and post-donation.
Scott Welch, a seasoned wealth management professional with prior roles at Wisdom Tree Asset Management and Dynasty Financial Partners, assumes the position of chief investment officer at Certuity, a multi-family office. In his new role, Welch will lead the firm's comprehensive suite of services for family offices, including legacy planning.
I'd like to also note that this issue commemorates Crain Currency's second anniversary. Thank you to our loyal readership and engaged community for their support in these formative years.
As always, we appreciate any comments, ideas and insights that would make this newsletter more useful. I look forward to growing this family office community with your help. Please email me at [email protected].
HANDPICKED: What donors need to know before — and after — writing that check
By MARCUS BARAM
Philanthropy by family offices and ultra-high-net-worth individuals is surging — through increasingly popular donor-advised funds, as well as charitable trusts and family foundations. But direct giving remains by far the most common way to give, by both self-made wealthy and legacy wealthy individuals, according to a recent Bank of America Private Bank study.
But what happens after you write a check to your favorite charity or nonprofit organization?
That question has become more critical as donors have taken a more active role in their philanthropy, say philanthropy experts and consultants to donors. “They want to be confident that their donation will result in something positive — a cure to a disease, more kids going to college, fresher water in their lake system,” said Joseph Brooks, managing director of Washington-based Arabella Advisors.
Charitable giving can be an incredibly personal experience, given that donors prefer to align their donations with their values. It can be incredibly fulfilling and yet can be fraught with intensity due to the imbalance in the power dynamic, misplaced expectations and the pressure to perform.
BEFORE YOU WRITE THE CHECK
To avoid such drama, experts advise donors to take several steps before donating:
- Learn about the cause or issue so that you’re making good grant-making decisions.
- Establish a good relationship or rapport with the grantee so that it’s easier to communicate about strategy or challenges down the road. “If you have determined if you truly respect the leadership of the organization, if you have determined that it's a place you want to invest your philanthropic dollars, then the relationship that ensues is one informed by that respect,” said Elizabeth Wong, the head of philanthropic advisory services at Fairfield, Connecticut-based Foundation Source.
- Agree on expectations and goals: “Both sides should know what they’re getting into,” Brooks said. “Having that conversation ahead of time is really important so that philanthropists put on the table what they’re looking for, and the grantee is able to manage the expectations of what is doable.”
- Discuss what to include in a grant report — a quarterly or annual report that includes indicators and metrics on the charitable outcomes, said Julia Healey, CEO of United Charitable, a Tysons Corner, Virginia-based nonprofit that works with donors to achieve their charitable goals. “Calibrate what they’re asking at the preapproval stage with the types of questions and metrics that need to be asked."
Once you write that check, it’s important to stick to your schedule — whether they are monthly or quarterly check-ins — as well as grant reports.
Such reports are essential, but donors need to make sure that they don’t prove burdensome for smaller organizations that may not have a staff to work on them, especially if it takes away from the group’s mission, Brooks said.
“We talk to our clients about trust-based philanthropy — it’s a way to think about philanthropy in a way that’s less transactional and more about creating very transparent, authentic relationships,” he said.
When problems arise — say, the organization is burning through money or not accomplishing its goals — that is the ultimate test of the strength of the donor-grantee relationship. “If you’ve already established that rapport, then you can have that conversation when things don’t go as planned,” Wong said.
Rather than micromanage the situation or get angry, it’s better for donors to adopt the right tone and approach, similar in some ways to how investors would deal with a company that is failing.
“You might say: ‘We had this milestone, and you were supposed to reach three more communities, and we’re falling short. Can you tell me what happened? Why have things shifted?' ” suggests Maryann Fernandez, a philanthropic adviser to wealthy families. “You want them to be honest with you, and that all depends on the relationship you’ve established and how you communicate.”
Donors can offer support and guidance, if they have legal or accounting expertise. They can also “rely on their network,” said Brooks. “Where the challenge can be financially related — and organizations can go through ups and downs through no fault of their own — donors can bring others to the table.”
Ideally, the relationship lasts, leading to new tranches of funding, and can even outlive the original donor. Brooks recalls working with a family patriarch who was so committed to a cause that he made sure through his estate to leave “significant amounts of money as an endowment and bringing more people in to give. It was amazing to watch him rally support for this organization.”
Multi-family office Certuity hires Welch as CIO
By ANDREW COHEN
Veteran wealth management executive Scott Welch has been named chief investment officer at Certuity, a registered investment adviser and multi-family office that manages more than $4 billion in assets.
Welch formerly held CIO roles at Wisdom Tree Asset Management and Dynasty Financial Partners. Before those roles, he co-founded the investment advisory firm Fortigent in 2006 and counted Certuity as one of his earliest clients. Welch will now help spearhead Certuity’s holistic approach to its family office services, which include legacy planning, governance and tax planning.
“For wealthy families, [Certuity] has the ability to be a one-stop shop,” Welch told Crain Currency. “There’s a definite trend in the industry toward holistic wealth planning, where you're looking not just at one piece of a family’s pie but the whole pie and trying to make sure it’s a cohesive solution you're delivering to them.”
Evergreen funds are being prioritized by Certuity and other investment managers in the private credit market. An evergreen structure allows institutional investors to take money out more easily than under traditional structures such as drawdown facilities, which often lock up investors’ cash in a fund for seven to 10 years. Firms such as Carlyle and KKR have also launched evergreen funds aimed at private investments.
“Over the last few years, there’s been an explosion of structures that the industry generically refers to as evergreens,” Welch said. “The private credit space has dove into that in a big way, and the market is full of strategies that allow people who are not hyper-wealthy to have access to private credit strategies. It’s been a big phenomenon.”
LOOSE CHANGE
Sotheby’s sells hockey stick for record $336,000: But not just any hockey stick, obviously. Wayne Gretzky’s autographed stick from the 1988 Stanley Cup Finals fetched $336,000, setting an auction record for any NHL hockey stick sold publicly.
Bernard Arnault said to have bought stake in Cartier owner: The LVMH chairman and CEO has taken a “small” personal equity stake in Cie Financiere Richemont SA, part of a broader Arnault family-owned portfolio of investments in publicly listed companies.
Global Private Capital Association appoints new directors: Five new directors have been added to the board of the nonprofit, whose over 300 members are family offices, pension funds, venture capital firms and other institutional investors.
Help us with a story: We’re working on a story about how family members of family offices can create meaningful pre- and post-nup structures. If you have any comments on the topic, reach out to [email protected].